The US Economy: Everything You Need to Know

By Sandy Prisant

Have you noticed that house prices are the lowest in 9 (nine) years? Do you understand that the American worker's earning power has not risen a jot in a couple of decades?  Do you know there is no record of any politician in the past 4 years who has offered any specific plan or program that would guarantee creation of one single, new American job?  

Are you aware there is at least one Depression each century? And that there are boatloads of economic statistics that demonstrate we are in about the 4th year of what is likely to be a classic 10-year Depression?

If so, you need not waste time following the monthly grind of house prices, jobless claims and GDP numbers, because not very much different or better is going to happen over the next five years.  

History teaches us clearly that government cannot by itself pull us of this slump. It also teaches that the private sector only hires when it needs, because of increased demand and new orders--not because of irrelevant changes in the tax base or accounting rules.  We need a fresh economic engine to drive us forward.  Hitler provided such an engine. Osama did not. The effect: Today one in five Americans are either out of work or can’t find meaningful work right now.

Read Robert L Borosage's analysis of the real issues below and why we need an honest examination.  Of ourselves and our future.



This is a classic "small d" democratic moment. The economy is in deep trouble -- immediate and long term. Washington is oblivious, compromised by moneyed interests, knotted by ideological divides. It will take an angry and aroused citizens' movement to demand the debate worthy of a great nation in deep trouble.
The dismal jobs numbers only punctuate the reality of an economy that isn't producing sufficient jobs. The crisis is both immediate and long-term. The so-called recovery hasn't begun to recover the jobs lost in the Great Recession. 25 million people are in need of full time work. Home values continue to fall. 25 percent of 17- to 25-year-old high school graduates not in college are out of work. Much of a generation is at risk.
The immediate is only an expression of more profound problems. The middle class was losing ground before the Great Recession. Good jobs are being shipped abroad. Wages aren't keeping up with the costs of basics. The broad middle class that made America exceptional is disappearing. The American dream seems ever more like a nostalgic memory. The nation continues to run unsustainable trade deficits, and must dig out of a mountain of debt -- both public and private. For the first time, an increasing majority of Americans fear their kids won't fare as well as they have.
We need action to put people to work. But short term fixes aren't enough. Americans are looking for a serious strategy that will get us out of the mess we are in.

The Beltway Bloviating
But inside the beltway, Washington is clueless. It's the only major city in the country where housing prices are going up. A flood of corporate lobby money insures that the tables are full at the high end restaurants. Entrenched corporate interests buy a lot more than lunches with their dough. They block vital reforms on health care, energy, trade, Wall Street. They feed off taxpayers, protecting their subsidies and tax dodges, avoiding taxes, while deficits rise and essential programs like nutrition for infants get cut.
The politicians prefer posturing to bold action, "message" and "spin" to leadership. Republicans even with the majority in the House are focused on obstruction. They vote for more tax cuts for the wealthy and corporations, paid for by ending Medicare and Medicaid, hiking costs for those least able to pay -- seniors, the disabled, the dying. They vow to blow up the economy if they can't get a deal on trillions in domestic spending cuts, accompanied by more tax breaks for the wealthy. They're lining their campaign coffers carrying water for the big banks against even minimal reforms.

The adult Republican presidential candidates like Mitch Romney claim they can get the economy going and create jobs. But they only recycle old and failed nostrums. More tax cuts for corporations who are already sitting on over a trillion in cash waiting for customers. More tax cuts for the wealthiest, who already have the most concentrated income and wealth since the eve of the Great Depression. More corporate trade deals that ship goods jobs abroad, undermine wages at home, and force up to borrow over a billion a day from abroad to balance the deficits. Less regulation when we haven't recovered from the catastrophe caused by the excesses of deregulated Wall Street. They pretend they can balance the budget and put people to work by cutting domestic spending, cutting taxes, increasing spending on the military, and not dismantling basic promises like Medicare and Social Security. They and everyone else knows that is a lie.

The White House offers no clear way out. The president wants to hail the successes of an economy that isn't working for most people. Yes, his policies saved us from free fall -- thanks, but we're worried about what we face, not where we've been. He sensibly calls for "winning the future" -- making investments in areas like education, innovation and infrastructure. But he's locked himself into austerity, focused on cuts, and offering no big vision of how we move forward. He's more sensible than the tea party zealots, but remains unwilling to tell Americans what needs to be done and that fight for it.

The Democrats in the Senate are a babble, too divided to deliver a message. The House Democrats are cowed by the losses in 2010, too worried about being accused of being "big spenders" to lay out a course to get the economy going and put people to work.

And few seem ready to put out a strategy that necessarily will take on the interests that are strangling the dream. A national trade strategy that isn't controlled by multinationals. Affordable health care not catering to private insurance and drug companies. Fair taxes that shut down the tax havens, the dodges, the obscene subsidies that drain our resources. An investment strategy that generates vital public and private investment, not more Wall Street speculation, or CEO incentives for laying off workers and plundering their own companies.

It will take a popular uprising to get Washington even to begin to focus seriously on jobs and the economy. We've seen this before. There was a bipartisan consensus on the Iraq War until a growing movement forced first Democrats and then the Bush White House to face reality. The Washington establishment was drunk on slashing Social Security and Medicare to address deficits, and Republicans embraced gutting Medicare, until popular disapproval expressed both in the polls and in the special election in upstate New York sobered them up a bit. The anger expressed by the Tea Party minority still has Republicans in Washington reeling.
Now we need the people to speak again. This time for the American majority. We aren't buying the old conservative elixirs. The New Dem-Republican lite embrace of half measures and conservative cross dressing isn't acceptable.

Washington has to hear a clear message. We elected you to get this economy going, not gut Medicare. We want to know how you will create jobs. We don't want to be served the old tired babble. We know we can't simply cut our way to prosperity. We know we need a major change in our global strategy. We know we've got to make investments vital to the future -- in education and in innovation. We know this economy needs major reforms. Anyone not willing to challenge the corporate interests that are strangling change isn't serious. We know it is hard to focus on creating jobs when deficits are this high. We know we'll have to sacrifice, but we're not broke -- we don't have to break promises to our kids or our parents. And don't ask the victims of this economy to sacrifice when those making out like bandits are given a pass. We know once the economy is moving, taxes have to go up and spending has to be brought under control. So stop the nonsense of no tax hikes. Tell us what you will cut and why. Don't pretend choices don't have to be made.

So lay it out. How do you put people to work, change our economic strategy so we begin once more to make things in America and create good jobs, not poverty wage jobs? How does that relate to getting our books in order and our priorities straight? Give us a debate worthy of a great nation in deep trouble.
In August, after Washington reaches an inevitable deal on lifting the debt limit after weeks of posturing and bluster, of an idiotic debate focused on what to cut rather than how to get the economy going, legislators will return home for recess. They need to hear from us.

Robert L Borosage is President of the Institute for America's Future.

Needled

By Prof. Claudia Ricci

 

Editor's Note:  Professor Ricci is a noted novelist, journalist and educator. She has taught and created programs at Georgetown University and the State University of New York. Dr Ricci is a founding collaborator in the Wordsmith Wars blog.

At the worst moments of the chemo, after she throws up into the basin, and forces herself to eat some cherry jello and maybe a few bites of banana, Anna plays the flamenco, drifting perhaps into a soleares, a sweet lament that starts slow and then pulls up tempo.  And when the soleares stops working, and no longer transports her, she shifts to a tango or even, a fandango.

And then comes the day that she steps inside the doctor’s office in the black and red satin dress.  It rustles as she walks, and the luscious tail of the bata de cola trails behind her.  Anna picks up a fistful of ruffles in the train, and enters the examining room.  Her nailed shoes, tied at the ankles in ribbons, clatter on the waxed floor.  Her black hair is sleek, almost wet looking, pulled tight to her head and knotted at back in a donut.  She hugs a black lacy shawl to her shoulders and in her free hand, she is pumping a red flowered fan. 

The nurse enters behind her.  Oblivious.  She opens Anna’s medical file –three inches thick—and asks Anna to step on a scale against the wall. 

“Must I?” Anna sneers.  The nurse hesitates.

“Must I get the doctor?” the nurse asks.

Anna’s eyes narrow.  Still holding the ruffles, she steps on the scale, and the nurse records Anna’s weight. 

“Remember to subtract for the dress,” Anna says.

The nurse starts to say something.  Stops.  She asks Anna to turn around and stand against the wall.  Anna sighs, then swivels.  As she steps against the wall, she lifts her head with all the dignity of a Castilian queen. 

“Five feet ten and one half with those heels,” the nurse says, wrinkling her nose ever so slightly as she eyes the shoes.  Then she turns to Anna’s right arm.  “Now, how about the veins today?  How are they?”

          “My veins.”  Anna pauses.  Sneers.  “Are the same as always.”

Thrusting one arm overhead in the manner of the great bailoras, Anna locks herself in the dancer’s stance.  She looks as if she could be plucking a ripe Seville orange off a tree.  Twisting one wrist, she pulls the imaginary lush globe of fruit tightly to her bosom. 

          “I am glad you are so limber, Anna.”  The nurse crosses her arms.  “But would you mind sitting down?  This will go a lot faster if you do.”

          Anna glares, sits down and arranges the dress around her.  Then she thrusts one arm forward, exposing a pale blue vein.

“That one looks like it will work,” the nurse muses, reaching up and snapping one finger against the inside of Anna’s arm.

“Please,” Anna snarls, pulling her arm back.  “Please be gentle.”

“I’m sorry,” the nurse says.  Her voice softens.  “I really am sorry.”

Anna turns away, as if the nurse’s sudden kindness has made it so much worse.  “Do you know how many times that my arm has been needled?  Do you realize what you do to me every week?  And do you realize how important these arms are to my dance?”

The nurse bites her lip.  “I’m sorry.  I forget sometimes.  I know there are days when…when they, when we…have…considerable trouble getting in.”

Anna draws her shawl closer around her shoulders.  A single tear dribbles out of one eye.  She ignores it and sitting up straighter, she lifts her chin in the manner of the Iberian royals, casting a decidedly unfriendly glance at the nurse.  Then she thrusts her arm forward again. 

The nurse anchors Anna’s arm on the armrest and prepares the needle.  “Here we go,” she whispers.  Anna flinches as the needle passes into the crotch of her arm, but the nurse has tight hold of her hand. 

At first Anna and her pert red lips turn away, but soon she can’t help herself: she is tipping backward to look, drawn to staring at the syringe, particularly the small butterfly spread of sky blue plastic attached to the needle.  Anna brightens.  “Ah, you see, my fan has blue butterflies too.”  She flicks open her red fan again with her right hand, showing off the intricate design: a red background, swatches of yellow and orange flowers and blue and black butterflies dancing here and there. 

The nurse glances at the fan, but is more preoccupied with the needle.  She jiggles it.  “I think this vein may be blocked.”

Anna blinks.  Looks away.   As the nurse pokes the needle in further, Anna’s eyes open wider and begin to water.  Then she rapidly fans her face.  The fan is a hot blooded color, and the blue of the fan’s butterflies is exactly the same blue as the butterfly of the needle, the needle which the nurse is now pushing even deeper into Anna’s skin.

“Oh Dios mio, PLEASE NO!” Anna yelps.  Her face is chalky and as sweaty as it is when she dances the farruca.

“I am sorry I am hurting you, Anna, I really am.”

          Anna sighs.  Keeps fanning.  “Yes, I should say so.”  Her voice breaks.  She fans faster. “How much longer must this go on?”  She chews into her lower lip, and her teeth pick up some of the berry-colored lipstick glazing her mouth.

          The nurse wiggles the needle ever so slightly.  She sighs.  Exhales.  “It’s just that I have to get a blood return on this one, and I’m not getting it.”

          Anna closes her eyes and stops fanning.  At moments like these, when it gets particularly difficult, she always resorts to intense mental rehearsal: she goes through the newest alegria in her head.  She can count it better than the seguiryas, or even the sevillanas or the malaguena.

She starts counting, but a moment later, is interrupted.  The nurse sighs, slides the needle out.  “I guess this 

one won’t work,” she says.  “Sorry.”  She applies a tiny circle of a bandaid over the hole left behind in Anna’s

arm.

“I’m going to have to get some back up.  See if someone else can help.” 

Anna blinks.  “Yes, well, and I think I am going to need my prescription now,” she mumbles, her fingers trembling slightly as she reaches into the ruffled bosom of her dress.  Inside is a tiny vial of pills.  Before the nurse can say anything, Anna has two tiny white pills in her hand and she is popping them under her tongue.  “This will help.”

The nurse looks embarrassed.  “Look, I am really sorry to put you through this.  But I …”

“…But I don’t want to hear it,” Anna says curtly.  “I really don’t want to hear it.”  She smiles her thinnest, tightest grin.  “Just go ahead, please, find someone.  Someone who won’t hurt me.  And get it over with.” Anna inhales, saying a small prayer that the pills will work their miracles once again.

The nurse leaves and returns almost immediately with another nurse.  A young man.  Slim and very tall and dark-skinned.  He smiles and Anna  looks into his eyes and her first thoughts are, he is not at all handsome, but he is very kind.  And he would make a suitable partner. 

He takes Anna’s hand and for a moment she expects him to kiss it.  But he simply rubs his long brown fingers over the surface of her skin.  “I hear we are turning you into a pin cushion today,” he says very quietly.  The way he says pin: peen.  And cushion: cooshun.  His accent is…what?  Latin?  Indian?  Iranian?  She cannot tell, and well, what does it matter?  He grows more handsome by the moment.

He keeps sliding his fingers over the back of her hand.  “So how are the veins here?”

          Anna closes her eyes, smiles, and gracefully pulls up her hand.  Her blood red nails glitter.  “My hands…are magnificent,” she whispers, opening her eyes again.

He smiles, bashfully.  Anna notices the intense silkiness of his black hair.  The giant oily pearls that are his eyes.  She sighs.  The other nurse, who is standing in the corner of the examining room, arches one eyebrow, then turns and leaves the room, making the door smack shut as she goes.

The young man looks up.  Meets Anna’s eyes.  Clearing his throat, he takes Anna’s outstretched hand and pulls close to examine it again.  “Well, these don’t look as ravaged as the ones in your arm.  I see what these treatments have done to torture your poor arm.”

“Ah, and not just my arm,” Anna shoots back.  Her voice croaks.  The man lifts his eyes and Anna returns the look.  In it is an odd combination of fire and ice.  Sorrow and fatigue.  Fortitude and resignation.  Pride and shame and mostly, relief.  She watches in silence while he proceeds to wrap a rubber tourniquet around her wrist, making the veins in her hand bulge slightly.

          “So, would you mind if I played my CD?” Anna asks, her eyelashes fluttering.  Her vision is beginning to swerve.  Hard shapes and straight lines are turning to butter.

          “Oh, no problem,” the nurse says.  “Do you need help?”

          “Not a bit,” Anna says.  “I have done this all before.”  She uses her free hand to reach into a satin bag for a pair of headphones.  One-handed, she slips the headphones over her sleek hairdo.  By now there are several stray black hairs at her moist brow.  Anna switches on the CD player and so, when the needle vanishes into a vein in the back of Anna’s left hand this time, she is listening to a cantaor singing a woeful tale of his lost gypsy. 

Anna closes her eyes as a bailora joins in, dancing in the background; there, now, she can hear her feet clacking rapidly on wood.  Besides that, there is a set of castanets rattling and a clang of the martinetes, the ironsmiths’ metal hammering against metal.  The cantaor’s voice rings up to a prolonged trill just as the young man gets his blood return.

          “That will do it,” the young man says, filling a small clear tube with Anna’s ruby blood.  “Now we just need to put the radioactive tracer into the vein and we’ll be all set to do your scan.”

          Anna looks up from her CD, a docile smile on her lips.  Her head feels loose, as if it coming unattached from her shoulders, which are now bare of the shawl.  The fan sits closed up in her lap.  She blinks, sinking ever deeper into the music. 

          “Did you know, young man, that duende eases all of our pain?”  She whispers this, and her words are slightly slurred.  He nods. 

“Please,” she says.  “Please state your name?”  He hesitates.

“Arturo.”  He pats her hand once more and starts to pull away.  Anna wants to hold his hand there, but her grip comes too slow.  He leaves the room, and she goes limp, sinking listlessly into her chair.  The pills have taken hold, no doubt, because now she is yawning, and smiling broadly, and dancing on a brightly lit stage that is rising into the air.  She laughs.  After all this is over she will call her sister, Margarita, and tell her this: that it isn’t hard to dance when you are rising toward heaven, because there you can freely pluck oranges and apples from the Garden of Eden.  And because you are on chemo, and because everyone feels sorry for you--even God—He doesn’t care one bit that you are there stealing His fruit.  And eating it right there in the Garden.

Anna laughs.  When the tall young man returns with a small lead box, the one that contains the radioactive isotope, she reaches out to take his hand.  He puts the box down and staring hard into her eyes, he readily accepts her hand – and his role in the dance.

Anna watches him, a placid smile on her lips.  And then the music turns fiery, and the moment comes.  The stage clears and he steps into the white circle of light.  His elbows lifted to each side, and his narrow hips immobile, he tips his head back proudly and begins pounding his heels in perfect unison with the compas, the rhythm of the music.  Ah but what a pair of legs Arturo has, thundering now against the floor. Yes, she thinks: he is more talented than any partner I have had before.

Now it is her turn to spin: the young man reaches out one hand to her.  Mustering all of her grace and dignity, she lifts herself off the chair and thrusts her torso forward.  Her bosom swells fully into the satin fluff and ruffles.  Moving slowly at first, she begins swiveling and tapping, all the while holding one armful of ruffles at her hips.  The other arm stands overhead.  Her movements quicken, and soon her hips are twisting, and her feet hammering like a sewing machine.  And there, there are her wrists and fingers, all bent at odd angles, giving her hands the look of branches, branches on an orange tree, a tree from which she always plucks her imaginary fruit. 

She pauses, out of breath.  The two of them –she and her amazing Arturo.  They are holding hands, and now, suddenly, they are bowing.  Surely it cannot be over already?  Together they occupy the stage light.  Staring blissfully into the darkness behind her eyes, she feels her heart pump as quickly as her fan, as the young man whispers “Anna, you were just wonderful.”

“Thank you,” she whispers back.  And then she waits, patiently, for all the clapping to stop.  And for the needle to be withdrawn and for the curtain, finally, to fall on all of this. 

Dancing.

The End

A New Dawn for the University? Part 1

Editor's Note : When the Egyptians created the first university over 1000 years ago--Al-Azhar in Cairo--it was envisioned as a place for advanced academic instruction, disciplined thought, debate and meditation on the student's relationship to society and the world around him.


Then something went wrong.  Everything shifted towards corporate internships and a straight line between a 4-year degree and a 5-6 figure salary.  Effectively, your entrance exams became your first job interview.


Today, the increasingly desperate marketing of colleges notwithstanding, we all know the truth.  That straight line has been broken. The commercial value of a degree is now dubious. But that may be a good thing. 


It may mean that serious Universities can resume a traditional non-career-based role as institutions where we learn about ourselves, our society and how to think more clearly about issues more profound than resumes. This could be a silver lining in a world where there will never again be enough jobs.  


The University, at least, may be allowed to get back to its earnest, erudite, creative roots.  Back to Cairo in the 10th century.


Case in point:  Professor of Journalism Claudia Ricci is a noted educator, novelist and journalist. She is also a founding partner in the Wordsmith Wars  blog. In the past year she has put together a custom academic curriculum at the State University of New York. It addresses a subject very much needed by students and society as we grind through the current Depression. The subject: Happiness.


Here's the course prospectus:

ERDG 491Z -- University at Albany, SUNY

Professor Claudia Ricci, Ph.D.

READING & WRITING THE HAPPIER SELF: Spring 2011

Reading and writing transform the way we think, and how we see ourselves in the world. Neurological research now shows that changing the way we think can produce positive physiological changes in the brain. At a time when an epidemic of mental health issues plagues our nation, and threatens to paralyze students in the academy, this class presents a set of cognitive tools and practical skills that will help students refine and enhance their educational goals while examining a broad range of life issues. Beginning with philosophical ideas set forth by Aristotle, the class will rely on texts from psychology, neuroscience, literature and narrative theory, to open up discussions about the patterns of human behavior and thinking that tend to produce lasting fulfillment and deep reward. In keeping with research by psychologist James Pennebaker and others who have demonstrated the value of expressive writing, students will engage in extensive journaling and other self-reflective writing assignments as they seek to define what it means, and what it takes, to find happiness. Part of the work in the classroom will be to help students identify their individual “signature strengths” that can produce what positive psychologist Martin Seligman defines as “authentic happiness and abundant gratification.” In addition to classroom work, a special two-hour laboratory session, with attendant readings and writing exercises, will be required each week; students will work with experts in mindfulness, meditation, yoga, spirituality and stress reduction, and will document how these techniques can help the student better cope with the inherently stressful nature of University life.

 In the coming days, Professor will be posting blogs that draw on the techniques and outcomes of her first Happiness curriculum.

Competition: Guess the State!

By Sandy Prisant

I live in a state that is certainly not timid in its approach to this Depression--and its future. Within the past year alone here are some of the things my fellow citizens have done. From these clues, can you...

"Guess the State!"

• As our new Governor, we elected the primary unindicted co-conspirator in the largest Medicare fraud in US history.

•  We entirely neutered the Democratic party, throwing them out of every single statewide office.

• We elected overwhelming GOP majorities to both houses of our legislature, leaving no checks and balances.

• Still hewing to 19th century policies that limited most state legislators to very short sessions--on the premise that any politician can only be trusted for so many days a year--our legislature is only allowed to meet for 60 days/annum.

• But that did not hinder our representatives and unindicted governor from a breathtaking set of legislation in the term just completed, to help our citizens through this Depression.  Among the most notable new state laws:
• Reduce unemployment benefits to under 6 months, even though we have one of the worst unemployment rates in the country-- a third higher than the national average. 
• Total new job creation programs proposed or passed by lawmakers all running on a job -creation platform: Zero.
• Specifically use the benefits taken from the unemployed to deliver significant tax cuts to 30,000 corporations. 
• Proposed elimination of the State Development Agency. 
• Cut funding to education across the board in a state that tests near the bottom.

• Dismantle Medicaid, ignoring the Federal mandate requiring 90% of funds go to patient services, choosing instead to share $1.1 billion in
  patient funds as profits with managed care companies. (According to the New York Times.)
• Total new jobs created by lawmakers all running on a job-creation platform: Zero.
• Reversed thirty (30) years of state environmental legislation
• Defied the state constitution by making the state Supreme Court a servant of the legislature--permanently ending checks and balances.
• Passed all three priorities of the National Rifle Association.
• Assaulted democracy through new restrictions to actually reduce voting days and hours in all elections.

 

What is this enlightened state, beholdened only to corporations, party pros and gun owners?  Send your answer to Wordsmith Wars. And pray for the 95% of my state's citizens whom are not rich.

Competition: Guess the State!

By Sandy Prisant

I live in a state that is far from timid in its approach to this Depression, the fate of it's citizens, or its future. Within the past year, here are some of the things my neighbors up and down the state have done.  From these clues, can you...

"Guess the State!

 

• As our new Governor, we elected the unindicted chief executive in the largest Medicare fraud in US history.

•  We entirely neutered the Democratic party, throwing them out of every single statewide office.

• We elected overwhelming GOP majorities to both houses of our legislature, leaving no checks and balances.

• Still hewing to 19th century policies that limited most state legislators to very short sessions--on the premise that any politician can only be trusted for so many days a year--our legislature is only allowed to meet for 60 days/annum.

• But that did not hinder our representatives and unindicted governor from a breathtaking set of legislation in the term just completed, to help our citizens through this Depression.  Among the most notable new state laws:
• Reduce unemployment benefits to under 6 months, even though we have one of the worst unemployment rates in the country-- a third higher than the national average. 
• Total new job creation programs proposed or passed by lawmakers all running on a job -creation platform: Zero.
• Specifically use the benefits taken from the unemployed to deliver significant tax cuts to 30,000 corporations. 
• Proposed elimination of the State Development Agency. 
• Cut funding to education across the board in a state that tests near the bottom.
• Cut 5,000 jobs in the public sector

• Dismantle Medicaid, ignoring the Federal mandate requiring 90% of funds go to patient services, choosing instead to share $1.1 billion in
  patient funds as profits with managed care companies. (According to the New York Times.)
• Total new jobs created by lawmakers all running on a job-creation platform: Zero.
• Reversed thirty (30) years of state environmental legislation
• Defied the state constitution by making the state Supreme Court a servant of the legislature--permanently ending checks and balances.
• Passed all three priorities of the National Rifle Association.
• Assaulted democracy through new restrictions to actually reduce voting days and hours in all elections.

 

What is this enlightened state, beholden only to corporations, party pros and gun owners?  Send your answer to Wordsmith Wars. And pray for the 95% of my state's citizens whom are not rich.

US Shock: Treasury to Exempt Regulation of Forex Derivatives That Caused 2008 Freeze

By Sandy Prisant

Editor's Note:  Over 60% of Americans believe the US is headed in the wrong direction, but they have no sensible idea why. Please read the piece below by Avery Goodman in Seeking Alpha and understand why the end of Osama Bin Laden is not the end of our problems:

Under the requirements of the Dodd-Frank legislation, all FX swaps and forwards are supposed to be reported to a swap data repository or, if there wasn't one, to a regulator like the U.S. Commodities Futures Trading Commission (CFTC). The regulator is supposed to investigate irregular activity. Foreign exchange forwards and swaps represent about $50 trillion in nominal value of a total derivatives market of almost $600 trillion. Unfortunately, Congress gave some leyway to the U.S. Treasury to exempt some derivatives from regulation. If the U.S. Treasury has its way, FX swaps and forwards will not be regulated, and trillions of dollars of interest rate swaps and OTC forward contracts are almost certainly going to be restructured into the form of FX swaps and forward contracts, defeating the purpose of Congress.

Regardless of what the U.S. Treasury claims, FX swaps and forwards are high risk derivatives and were one of the primary reasons currency markets froze after the demise of Lehman Brothers. That freezing, in turn, was part of the cause of the 2008 Financial Crisis. The Federal Reserve established emergency currency exchange swaps with many foreign central banks in the hope of stabilizing the world financial system because of an alleged "shortage" of dollars. We thought that doing it was a mistake. We still feel that way. However, there are other people whose opinions we respect, who think otherwise. They think it was the correct decision.

Correct or not, those emergency lines of "credit" were established because European banks could not find enough dollars to make their payments under these type of derivatives because most of them bet on a declining dollar. The U.S. claims that there is no need to post performance bonds at a clearing house like the CME and Ice exchanges. While the exchanges are certainly not perfect places, and we have critiqued them heavily in the past, they are better than the extreme instability that follows the OTC market for derivatives.

Yet, according to the Treasury, it is too problematic to post performance bonds. Indeed, the Treasury says that no bond is needed to insure performance. But, if no bond is needed, why would a clearing exchange force banks to put up anything more than the most nominal bond, if any at all? After all, isn't it a no-risk FX swap or forwards contract? However, that isn't going to happen, because it isn't true. The exchanges would require substantial performance bonds on these type of derivatives. They are highly risky, and other clearing members prefer not to be bankrupted, or at least "lose their shirts" because of the capricious gambles of other banks.

Performance bonds are just a small part of the story. Even more important is the fact that by exempting FX swaps and forwards, the Treasury defeats the so-called "Lincoln" provision of the Dodd-Frank legislation. Swap dealers are supposed to get " No Federal assistance" including "loans" from Federal Reserve credit facilities, discount windows, emergency lending facilities etc. can be provided to any "swaps entity." If FX swaps and forwards are exempted, financial institutions that write them will have full access to the Federal Reserve (a/k/a big bank slush fund) at the ultimate expense and risk of the taxpayers of America. That is probably what this exemption is all about.

Being able to access Federal Reserve funding will allow swap dealers, such as the biggest banks with the most systemic risk, to engage in high leverage derivative writing. When backstopped by the Federal Reserve, such derivatives allow sophisticated entities to control cash markets that trade the underlying product. Levels of leverage that are typical in OTC and even exchange traded derivatives have been illegal in the cash stock markets since the Crash of 1929. Not in the derivatives markets. A tiny amount of collateral can buy control over a huge swath of the market, especially when the leverage is infinite, as it is when you aren't required to post any bond at all. If you are backed up by the ability to access the Federal Reserve lending windows, then its bombs away! You can do whatever you want, makes tons of money temporarily and, when the gamesmanship finally blows up in your face, you can shift the loss to the American taxpayer, while you retire to a nice island in the Carribean.

Changes to prices created in derivatives enter the cash market by way of arbitrage. Consequently, dealers in derivatives who have access to a large source of backstop money have the power to manipulate the value of all assets, including stocks, bonds, commodities, precious metals and currencies, at least in the short run. The changes in psychology that repeated short term manipulations can induce, will also profoundly affect the long term perception of various assets, unless most market participants become aware of the manipulated nature of the pricing structure.

Most market participants do not understand the interaction of derivatives and cash markets. Most believe, for example, that they can predict future market behavior by carefully crafting elaborate technical charts and graphs using historical pricing data. This could work, in theory. However, in practice, blind adherence to charts results in deep losses because technical analysis in cash markets cannot fully account for the interference from small numbers of market participants, playing in derivatives, who use a very small amount of assets to create large marking-moving price fluctuations in the cash markets. If they can be backstopped by the Federal Reserve, as they will be, with respect to FX swaps and forwards, if they are exempted from Dodd-Frank, there is no end to the mischief they can create with no long term adverse effect on themselves if they screw up.

A case in point is the so-called "Flash Crash." According to the U.S. Securities & Exchange Commission (SEC) report, it was precipitated by heavy buying of short positions at the CME Group's mini-S&P 500 futures on May 6, 2010. In response, the Dow industrial average plunged by 900 points, and a similar plunge in the market as a whole. Just one investment fund wanted to hedge stock positions, and its brokers sold too many Mini-S&P 500 short contracts at one time. The cash market was not aware of what was happening, and responded with panic. Many market participants erroneously concluded that massive selling was happening in the real cash market by persons holding real stock positions, a lot of market makers withdrew in fear of big losses, and everyone began dumping equities. Not mentioned in the official report is the fact that stock prices collapsed until a mysterious "force" began to buy huge numbers of long mini-S&P contracts in sudden and concentrated pulses, without regard to the losses that such buying habits would give to a profit-oriented entity. Cash markets recovered almost immediately as this buying "force" rescued the mini-S&P 500 derivatives market.

There is yet another concern. Exclusion of FX swaps and forwards from transparency and clearing requirements, applied to other derivatives, will cause banks to restructure interest rate and credit swaps as foreign exchange swaps or forwards. A notional amount of about $450 trillion dollars worth of interest rate swaps are now floating around in the world, for one example. If even a fraction of those are converted to exempt FX swaps and forwards, tens or even a hundred trillions or so of non-transparent, inherently unstable derivatives will hit the Street, with no performance bonds to insure compliance. We have written, in the past, critiquing the game of strategically changing performance bonds levels to achieve desired prices in precious metals. However, requiring no performance bond at all, and having no ostensibly "third party" entity to hold them, is an even greater folly.

The potential for instability is enormous. If banks can issue FX swaps and forwards that are not subject to Dodd-Frank, they will be able to hide this activity from shareholders and regulators. Enormous and irresponsible risks are sure to follow. We've already seen this in the past. The legislation was meant to change the sitution. With this new Treasury initiative, change will be torpedoed. Large banks have not been broken up. They are even bigger than before. If they were perceived as "too big to fail" back then, they are certainly too big now. U.S. Treasury action seems guaranteed to insure that private profits will, yet again, be pocketed by bank executives, while private losses are socialized by being shifted to taxpayers and savers in the U.S. dollar denominated investments.

As we noted, earlier, the need for the opening of Federal Reserve swap lines in 2008/2009 was partly the result of FX swaps and forwards which drained U.S. dollars from banks in Europe. The next freeze could involve these same instruments draining foreign currencies from American banks. There is no guarantee that foreigners will be as kind to us as we were with them. The World Financial Crisis of 2008 was not caused by sub-prime mortgages, but by the triggering of derivatives. When the contingency of massive mortgage default occured, credit default swaps were triggered. The hoarding of dollars by banks who needed to pay off on these obligations sapped demand from other areas of the economy. A massive shock to the system that could not be slowly and laboriously healed occured. Non-reportable credit default swaps are a similar threat. 

The risk is simply too great to be allowing banks to engage in non-reportable, non-marginable activities, especially when they will be allowed to obtain sponsorship of the Federal Reserve in their speculations. Yet, Mary Miller, Assistant Treasury Secretary for Financial Markets, has tried to explain that this will not be a problem. She says that the CFTC has anti-evasion authority, and that will prevent financial institutions from using exemptions to evade derivatives regulations. That doesn't make sense. As long as the bank employees have decided that whatever they've structured is an exempted "FX swap" or forward, they won't need to report it. How, then, can the CFTC hope to spot evasion? Identifying restructured transactions will be impossible. The agency will never even know that a transaction took place.

Allowing banks to retain the ability to make mistakes that put the entire world financial system into jeopardy is a big mistake. Transparency and accountability that were supposed to enter the world of OTC derivatives, as a result of Dodd-Frank, will be replaced by opacity. Opaque transactions invariably are a recipe for corruption, and behind-the-scenes manipulations. Allowing the U.S. Treasury to exempt deliverable foreign currency swaps and forwards gives us more darkness, when the financial system is in desperate need of light.

From a practical standpoint, once this proposal becomes a regulation, as it probably will, currency market traders will need to deal with the consequences. We may see greater short term dollar stability and/or currency exchange value increases than would otherwise be expected after QE-2 ends if the Treasury encourages the banks and Federal Reserve to enter into the type of FX swap and forward transactions that help dictate that result. This desire to manipulate currency markets may well be why the Treasury support the exemption.

Without that, we will probably see a big increase in currency volatility right away. But, even if the banks do as the Treasury would like, and help stabilize the dollar from collapsing, with such swaps and forwards, the pay back will be heavier volatility in the long run, once the instruments mature. In any case, U.S. regulations tend to affect almost all banks, all over the world, since most are involved, in some way or another, with the American financial system, due to current U.S. economic dominance. Exempting these derivatives means foreign banks, which are not as influenced by U.S. government policy regarding the dollar, to restructure other types of derivatives.

The main result is that the shadow world of derivatives will get yet another "pass" from the need for transparency and regulation. Traders can expect to deal with much greater currency volatility than ever seen before, and regular citizens will need to deal with this too. With this exemption, instead of adding stability as it was intended to, the net effect of Dodd-Frank will be greater instability. Tens or even hundreds of trillions of notional derivatives are going to be restructured to become exempt FX swaps and forwards. These have the potential to profoundly destabilize the cash currency markets in ways that we cannot fully anticipate. A bigger crash than the one in 2008 is ahead and market participants should begin preparing for it. It is no longer a matter of "if" but only of "when."

Safe Nuclear does Exist, and China is Leading the Way with Thorium

 By Sandy Prisant

Editor's Note:  Events this month may not just set back Japan by a decade; they could set back the planet by a century.  We accept wars, plagues, auto mayhem and gun violence that kills tens of thousands annually, without a blink.   The thought of one nuclear worker effected by radiation  causes a collective swoon by all civilization.  Have we lost our minds? Our sense of  reason?  We have been bombarded with fear-mongering about Japanese radiation for two weeks--yet only two workers have been treated.  Meanwhile no one gives thought to the toll from the earthquake and tsunami--over 10,000 dead and thousands missing..  

In short, we seem incapable of even examining rational energy policy--even when Middle East turmoil leaves the entire oil market wildly unstable.  If we can't do this now, then when??  For those who can remain calm and rational, the following is another development on a more sensible course for future energy planning.  Yet again, as we rush to hide under a rock, China finds answers.  
  
The following analysis is from Ambrose Evans Pritchard in The Telegraph of London on March 26:
 

"This passed unnoticed –except by a small of band of thorium enthusiasts – but it may mark the passage of strategic leadership in energy policy from an inert and status-quo West to a rising technological power willing to break the mould. 

If China’s dash for thorium power succeeds, it will vastly alter the global energy landscape and may avert a calamitous conflict over resources as Asia’s industrial revolutions clash head-on with the West’s entrenched consumption.

China’s Academy of Sciences said it had chosen a “thorium-based molten salt reactor system”. The liquid fuel idea was pioneered by US physicists at Oak Ridge National Lab in the 1960s, but the US has long since dropped the ball. Further evidence of Barack `Obama’s “Sputnik moment”, you could say.

Chinese scientists claim that hazardous waste will be a thousand times less than with uranium. The system is inherently less prone to disaster.

“The reactor has an amazing safety feature,” said Kirk Sorensen, a former NASA engineer at Teledyne Brown and a thorium expert.

“If it begins to overheat, a little plug melts and the salts drain into a pan. There is no need for computers, or the sort of electrical pumps that were crippled by the tsunami. The reactor saves itself,” he said. 

“They operate at atmospheric pressure so you don’t have the sort of hydrogen explosions we’ve seen in Japan. One of these reactors would have come through the tsunami just fine. There would have been no radiation release.” 

Thorium is a silvery metal named after the Norse god of thunder. The metal has its own “issues” but no thorium reactor could easily spin out of control in the manner of Three Mile Island, Chernobyl, or now Fukushima. 

Professor Robert Cywinksi from Huddersfield University said thorium must be bombarded with neutrons to drive the fission process. “There is no chain reaction. Fission dies the moment you switch off the photon beam. There are not enough neutrons for it continue of its own accord,” he said. 

Dr Cywinski, who anchors a UK-wide thorium team, said the residual heat left behind in a crisis would be “orders of magnitude less” than in a uranium reactor. 

The earth’s crust holds 80 years of uranium at expected usage rates, he said. Thorium is as common as lead. America has buried tons as a by-product of rare earth metals mining. Norway has so much that Oslo is planning a post-oil era where thorium might drive the country’s next great phase of wealth. Even Britain has seams in Wales and in the granite cliffs of Cornwall. Almost all the mineral is usable as fuel, compared to 0.7pc of uranium. There is enough to power civilization for thousands of years. 

I write before knowing the outcome of the Fukushima drama, but as yet none of 15,000 deaths are linked to nuclear failure. Indeed, there has never been a verified death from nuclear power in the West in half a century. Perspective is in order. 

We cannot avoid the fact that two to three billion extra people now expect – and will obtain – a western lifestyle. China alone plans to produce 100m cars and buses every year by 2020. 

The International Atomic Energy Agency said the world currently has 442 nuclear reactors. They generate 372 gigawatts of power, providing 14pc of global electricity. Nuclear output must double over twenty years just to keep pace with the rise of the China and India. 

If a string of countries cancel or cut back future reactors, let alone follow Germany’s Angela Merkel in shutting some down, they shift the strain onto gas, oil, and coal. Since the West is also cutting solar subsidies, they can hardly expect the solar industry to plug the gap.

BP’s disaster at Macondo should teach us not to expect too much from oil reserves deep below the oceans, beneath layers of blinding salt. Meanwhile, we rely uneasily on Wahabi repression to crush dissent in the Gulf and keep Arabian crude flowing our way. So where can we turn, unless we revert to coal and give up on the ice caps altogether? That would be courting fate. 

US physicists in the late 1940s explored thorium fuel for power. It has a higher neutron yield than uranium, a better fission rating, longer fuel cycles, and does not require the extra cost of isotope separation. 

The plans were shelved because thorium does not produce plutonium for bombs. As a happy bonus, it can burn up plutonium and toxic waste from old reactors, reducing radio-toxicity and acting as an eco-cleaner. 

Dr Cywinski is developing an accelerator driven sub-critical reactor for thorium, a cutting-edge project worldwide. It needs to £300m of public money for the next phase, and £1.5bn of commercial investment to produce the first working plant. Thereafter, economies of scale kick in fast. The idea is to make pint-size 600MW reactors. 

Yet any hope of state support seems to have died with the Coalition budget cuts, and with it hopes that Britain could take a lead in the energy revolution. It is understandable, of course. Funds are scarce. The UK has already put its efforts into the next generation of uranium reactors. Yet critics say vested interests with sunk costs in uranium technology succeeded in chilling enthusiasm. 

The same happened a decade ago to a parallel project by Nobel laureate Carlo Rubbia at CERN (European Organization for Nuclear Research). France’s nuclear industry killed proposals for funding from Brussels, though a French group is now working on thorium in Grenoble. 

Norway’s Aker Solution has bought Professor Rubbia’s patent. It had hoped to build the first sub-critical reactor in the UK, but seems to be giving up on Britain and locking up a deal to build it in China instead, where minds and wallets are more open. 

So the Chinese will soon lead on this thorium technology as well as molten-salts. Good luck to them. They are doing Mankind a favour. We may get through the century without tearing each other apart over scarce energy and wrecking the planet."